It’s time for a spring clean: do you have your employee costs and payment processes in order?
You might not spend much time thinking about the way you pay staff, but it’s one of the biggest expenses for many businesses – and more than that, it’s your employees’ reward for their hard work.
With a few tweaks, you could make your payment systems more efficient and save money for both your business and your employees.
Use the employment allowance
Through the employment allowance, you can save up to £4,000 a year on National Insurance contributions (NICs).
This allows eligible employers to reduce the amount of class 1 NICs they pay each time they run payroll, until the allowance is used up or until the tax year ends.
The allowance is available to businesses and charities whose employers’ NICs liabilities were less than £100,000 in the previous tax year.
You can’t claim it, however, if you’re a company director who’s the only employee paid above the secondary threshold for class 1 NICs (£8,840 in 2021/22), or if you do more than half your work in the public sector.
Certain types of employees can’t be included in your claim either, such as someone whose earnings fall within the off-payroll rules known as IR35, or someone you employ for personal, household or domestic work (unless they’re a care or support worker).
If your business is eligible, you can claim the employment allowance using your payroll software or through HMRC’s basic PAYE tools.
Tax-efficient employee benefits
The great thing about employee benefits is that they reward your staff, but in many cases can be deducted from your business’s profits before tax – saving you money at the same time.
There are various tax-exempt benefits for employees, with just a few examples including:
- Pension contributions: Maybe not the most exciting reward, but an incredibly useful one nonetheless. Contributions you make to an employee’s pension are not taxable, provided they fall within the individual’s annual allowance and lifetime allowance.
- Trivial benefits: Broadly speaking, any benefit that costs less than £50 is not taxable, as long as it’s not in the form of cash or a cash voucher. It also cannot be given in recognition of work done (or to be done) by the employee.
- Staff parties: Although many office parties were cancelled in December 2021, this benefit isn’t just for the Christmas party – annual events that are open to all staff and cost less than £150 a head are exempt from tax.
- Long service awards: For members of staff who have worked in your business for 20 years or more, you can provide a non-cash gift free of tax. The cost of the award must not exceed £50 for each year of service.
- Training: Work-related training is exempt, including courses directly related to employees’ jobs, but also first aid and health and safety, leadership skills, and other development schemes.
Employing younger staff
There are several incentives for employers to invest in young people’s skills and development, especially in the wake of the pandemic which had a significant impact on people coming out of education and into the workplace for the first time.
The kickstart scheme, which offered funding for new jobs for 16 to 24-year-olds, has already closed for applications, but other advantages remain.
Under-21s, for example, have been exempt from employers’ class 1 NICs since 2015, on earnings under the upper secondary threshold.
You may not need to pay these for apprentices aged under 25, either.
Hiring young people comes with other rules to be aware of, however, so make sure you’re aware of your obligations as an employer, too.